Cephalon, Inc. (CEPH) reported strong second quarter results of $1.44 per share that easily surpassed the Zacks Consensus Estimate of $1.31 per share. Revenues increased 11% to $548 million. Revenues consisted of $539 million in product sales and $8.8 million in other revenues.

Results were driven by strong contributions from the central nervous system (CNS) and oncology franchises, which posted sales of $290.6 million (up 16%) and $82.2 million (up 86%), respectively. Its oncology drug Treanda continued to perform well, with sales coming in at $55.8 million. Cephalon increased its guidance for the oncology franchise by $15 million to $315-$335 million. We expect Treanda to see increased uptake in the indolent non-Hodgkin’s lymphoma (NHL) market by year end.

Meanwhile, Cephalon launched its follow-on sleep franchise product, Nuvigil, on June 1, 2009. Initial feedback on the product is encouraging. The company has undertaken several measures to ensure the smooth transition of patients from Provigil to Nuvigil.

We believe Cephalon has ample time to maximize market penetration ahead of the entry of generic versions of Provigil in 2012. Nuvigil has been priced at a significant discount to Provigil, and a co-pay assistance program has also been introduced to help reduce the financial burden on patients.

Pain franchise sales continued to decline with sales coming in at $123.6 million, down 8%. Growth in Amrix sales ($30.8 million, up 80%) was offset by the continued generic erosion of Actiq ($61.3 million, down 27%). Fentora sales came in at $31.4 million, down 13.6%.

Later this year, Fentora will face competition from BioDelivery Sciences’ (BDSI) Onsolis which received FDA approval recently. We expect the pain franchise to remain under pressure thanks to additional competition for Fentora and the potential entry of new generic competition for Actiq later this year.

Cephalon maintained its total sales guidance for 2009 at $2.175 – $2.225 billion. However, the company increased its adjusted net income guidance to $457 – $464 million. The company also introduced guidance for the third quarter which was slightly below expectations. Cephalon expects third quarter sales in the range of $540 – $560 million and adjusted income in the range of $108 – $116 million.

Going forward, we expect investor focus to remain on the company’s emerging oncology pipeline, Amrix, and the switching of users to Nuvigil. 
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